Global property securities market set to grow by almost 70% by 2011

German and Japanese property markets offer best investment opportunities, says Fidelity International.

The number of listed properties in commercial structures worldwide is expected to rise in the next four years, increasing by 70% on 2005 levels. This growth is likely to be faster in Europe and Asia, which will gradually reduce the dominance of the US in the market place. Demand has already been fuelled by the introduction of REITs and REIT-like structures in a number of countries recently including Singapore, the UK and Germany. And there is more to come - a further 10 countries are either about to convert or are discussing the possibility.

Speaking at a recent web conference, Steve Buller, manager of the Fidelity Global Property Fund and Polly Kwan, manager of the Fidelity Asia Property Fund, both commented on the opportunities arising from the growth of these markets.

Ms Kwan said: “I currently favour Japan. After 15 years of market downturn there are signs of recovery in the property market. Office vacancies are steadily declining and the pace of rental growth is accelerating – rising to 15% year on year this February. At the same time there is increased demand for office space in prime locations while supply remains limited for the next few years. The overall picture is very positive and with landlords able to negotiate higher rents, yields are attracting foreign investors.“

J-REITs (REIT-like structures) were introduced six years ago and since then the market has grown from zero to have 42 different listings representing $55 billion.

Ms Kwan also thinks there are good prospects for capital growth in the long term in China and India. Both markets have favourable demographics and a good economic outlook. Many major players in the property market remain unlisted and as listing increases, so will the number of opportunities. “I believe there will be consolidation in both markets so while there are plenty of opportunities emerging, it will be important to manage risk by picking property companies that will stay the course.”

Mr Buller continues: “For me, Germany holds particular interest at the moment. It is the third largest economy in the world but one of the least securitised property markets. Although it has the largest bank of property in Europe it currently has less than 0.5% of commercial buildings owned by REIT-like structures. The introduction of REITs will hopefully be the start of a securitisation trend.”

“If there is one cyclical recovery story still to play out in the world it is in the German office sector. Take up and absorption trends are improving, new office supply is low and prime yields are relatively attractive at slightly over 5%.”